The accident and emergency ward at a hospital in Athens – hospitals here face regular shortages of materials and equipment. Photograph: Sean Smith for the Guardian

Adonis Kostakos is unemployed and diabetic. Aged 50, he last worked regularly four years ago in the port of Piraeus. Back then he used Greece's public hospital system to have his blood sugar checked and get his medication.

These days, receiving no unemployment benefit, he cannot afford to pay for his drugs or the new €5 hospital fee introduced as part of Greece's austerity measures.

So today Kostakos has come to a free clinic in the shipbuilding town of Perama, where he lives, to pick up his medication. The drop-in surgery run by the global charity Médecins du Monde was originally set up to cater for illegal immigrants. But today, there are only native Greeks.

Posters on the wall show war and famine, but the solitary doctor, George Padakis, 30, is dealing with a different kind of catastrophe – victims of the financial meltdown, which has pushed Greece's health system to the brink.

"I have no insurance and I'm unemployed," says Kostakos. "I heard about this clinic from a friend. I was going to the public hospital, but nowadays I can't afford to do even that. I know lots of people in this town who are in the same situation as me, 10 of them personally."

Next in line is Nikos Famalis. He is 72 and has multiple health problems.

"I've been coming here since it opened," he says, when he emerges clutching a handful of boxes of medicine. "I used to have insurance when I was younger, but I don't have the right papers now. I'm trying to get papers for free treatment in the public hospital but it takes time."

The Greek system is a bureaucratic nightmare, with endless paperwork to fill in and hoops to jump through. Those without resources of any kind can qualify for free healthcare, but even then the state will only pay for some medicines.

And even those entitled to reduced or free medication often cannot find pharmacists to provide them and are instead asked to pay the cost up front and seek reimbursement. Others come into the clinic. A middle-aged man with swollen legs from heart disease needs diuretics; a younger man, who once worked in the nearby shipyards, comes in to be treated for high blood pressure.

"When I came here," says Padakis, "I didn't expect to be treating Greeks. I had no idea so many Greeks had these problems. I thought I would be working with illegal immigrants.

On a typical day the clinic sees around 20 people. "The problems are never simple. Sometimes people don't have the correct insurance or it takes time for the right papers to come through. Sometimes it is as simple as the fact that they don't have a few euros for the bus to go to the hospital for an appointment, so they come here.

"These people are often new poor [created by the financial crisis] and an additional problem is that the hospitals are now charging each time someone visits. The Greek heath system is just getting worse and worse," he adds sadly. "A health system that was not the best is becoming worse and worse."

"The people who can afford it can get immediate treatment. But what is happening in areas like this with high unemployment is that people with health issues are not getting checked up or, perhaps, like one patient – a 42-year-old man with diabetes – have not been taking medication when they should because they can't afford it, so what should be a manageable health problem turns into a crisis.

"He said to me: 'Look, I have four children and I only worked three days last month."'

If the clinic in Perama is an example of how bad things have got for those at the bottom of Greece's ruined economy, elsewhere doctors and patients have their own horror stories to tell in a corrupt health system where paying bribes to doctors is commonplace.

As a result of the crisis, doctors' wages in the public system have been cut in line with other government workers, while hospitals fear being merged and face regular shortages of materials.

Most damaging is how an already unequal health system has become more unequal still – a three-tier affair that discriminates systematically against those most vulnerable and least able to afford health care, marginalising them still further in society.

Even the private hospitals have not been immune to the crisis. In the Iasso maternity hospital Jenny and Pantedis Ioannidis, two young registrars, are celebrating the birth of their first child.

A bright, busy and modern place which handles 16,500 deliveries a year, the hospital has had to cut its fees by 35% in response to the crisis to ensure the flow of patients through its doors continues.

The man who performed the operation is sitting with them, Anastasios Pachydakis, 38, who trained for a while at London's Homerton hospital in Hackney. Pachydakis has performed two operations this year for free for some long-term patients whose business he hopes to keep in the future, because they did not have the money to pay him.

"Most colleagues working in private hospitals have had to cut their fees," says Pantedis Ioannidis.

Working in public hospitals – Jenny as a radiologist and Pantedis as an ophthalmologist – they have seen where the impact of the crisis has hit most acutely.

It is a crisis whose consequences will be inherited by their newborn son, not least the €35,000 of debt now owed by every new child born in Greece.

For the two doctors so far one of the biggest impacts has been on their income in a country where the salaries of public servants, including doctors, had traditionally been bumped up by bonuses at Christmas and for the Easter and summer holidays, amounting to an extra two months' earnings. Those "presents", as they are known, have been abolished as part of the Greek government's austerity programme.

"It is not just the bonuses," says Pantedis, "they have cut other allowances as well including an allowance for expensive medical text books."

Then there are the problems confronted by the hospitals. In one busy Athens accident and emergency department the ambulance drivers complain they are not always sure if they will be paid, while many hospitals have periodic shortages of equipment.

"I work in Athens's biggest hospital," says Jenny, "and there have been times this year when we've been missing a lot of important stuff. Because the hospital owed suppliers money, we had no stents. Then there were two weeks when we had none of the paper towels we use for wiping gel off patients. We were using toilet paper and kitchen towels. That was six months ago."

Pantedis's story is more shocking. A says a shortage in intraocular lenses for cataract operations earlier this year at hospitals in Athens meant a run on his own hospital, which was still well stocked, forcing his hospital to refuse new patients needing the procedure.

The Nikaia public hospital is very different to the modern Iasso. It is clean but old with gloomy corridors, the rooms bare and functional. Outside one of its buildings a dog suns itself where the ambulances drop off their patients.

Dr Olga Kosmopoulou, a specialist in infectious diseases including HIV, is wearing a badge on her coat. She explains it marks a six-year-old campaign to eradicate corruption by doctors and others in Greece's health system. It is a campaign, she explains ruefully, that was "completely unsuccessful".

"We have a private sector that has been highly profitable and we have had a public sector that has delivered good results," she says. "But the fact is it is not working now and it is not because doctors have had their wages cut.

"The problems are the shortages of materials that are essential in the public system and the fact that I don't feel I really work in public medicine any more because people have to pay at so many points," she adds.

"I chose to work in the public sector," she says with emphasis. "I had plenty of offers to work in the private sector, but I chose to work for people who could not pay."

Defiantly, she says she has only charged one of her patients the new €5 fee. The rest were simply too poor, so she refused to charge them. She is aware her stand against the new rule could get her into trouble, but says she is not scared"I have a patient who is HIV positive," says Kosmopoulou. "He was a journalist who worked on a little paper in Piraeus. He wasn't working and he owed his insurance company money and now he is uninsured. He has cancer. He can stay in the hospital and not pay. He can get his HIV medication and not pay. But I have a huge problem trying to get his chemotherapy paid for."

She returns to the same story I have heard from Jenny Ioannidis and other doctors – about endemic shortages.

Kosmopoulou reaches into her pocket and pulls out a needle required for affixing an IV line. "I always keep one in my pocket because the right size is so difficult to find."

She says bleakly: "We can't survive this crisis," and adds that she is afraid there is a plan to destroy Greece's public health system. In some respects, it is already in ruins.

• This article was amended on 8 August 2011. The original referred to a shortage in interocular lenses. This has been corrected.

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